Bombay High Court
Parle (Exports) Pvt. Ltd. And Others vs B.K. Solanki And Another on 14 November, 1986
Equivalent citations: 1987(12)ECC265, 1987(30)ELT167(BOM)
JUDGMENT
1. The proliferation of offences of strict liability or absolute liability in the post-war era has dealt a devastating blow at the classical concept of the criminal process predicated upon mens rea. Views are being expressed that there is a real danger that wide-spread imposition of criminal liability independent of a moral fault will result in such sanction being regarded with contempt and the theory of absolute prohibition may well have the opposite effect to that intended, and lead to weakening of respect for the law. The present case, in which a manufacturer of aerated drinks is being prosecuted under Section 27 of the Foreign Exchange Regulation Act, 1973 ('the Act') accentuates the necessity of exercise of extreme circumspection in prosecuting persons under regulatory offences.
2. Messrs. Parle (Exports) Pvt. Ltd. ('Parle') of Andheri, (West), Bombay, were negotiating with Messrs. Union Beverages at Sharjah and Messrs. Mohd. Nazel Al-Sayer & Sons, Kuwait, and Messrs. Dhofar Beverages Co., Salalah, for export of their concentrates with a view to enabling the foreign collaborators bottle and sell their products in Kuwait and Sharjah. As Parle had to face razor-sharp competition from other entrenched international giants like Pepsi Cola, 7-UP, Canada Dry, etc., the collaborators advised Parle to follow the practice of the international companies in honing a blitz advertising campaign as a sale promotion strategy. Earlier, the Reserve Bank of India had permitted Parle to send publicity material free of cost to the tune of Rs. 3.33 lacs but Parle discovered to their dismay that the product cannot capture market unless it is backed by high profile and expensive publicity drive. The publicity material sent earlier proved to be extremely inadequate and Parle on 1-2-1977 wrote to Reserve Bank of India requesting them to release foreign exchange of 25% of the F.O.B. value of the product viz., concentrate supplied for preparation and exhibition of publicity material like film for cinema and T.V. - huge neon signs - radio jingle in local language - automatic vending machines - audio visual aids - transparencies printed on plastic etc. to be manufactured in foreign countries. Parle assured the bank that the foreign exchange remittance would be decreased progressively to 15% and 10% in the succeeding and subsequent years.
3. On 21st March, 1977, the Reserve Bank of India sought clarifications from Parle on various points including whether Parle are entitled to a share in the profits of the foreign associates or whether the profit is confined to those realised on exports only. Parle replied on 22nd March 1977, giving the break-up of the sale of concentrates advertising expenses etc., and made it clear that they are not entitled to share in the profits of any foreign associates. As regards the technical know-how, Parle clarified that they do not get any reimbursement for the same because it is an international business practice for companies supplying concentrates to render technical assistance to the bottling plants as and when such service is needed. Simultaneously, on 3rd June 1977, the Dy. Controller of Reserve Bank of India wrote to the Joint Controller of the Exchange Control Department recommending release of foreign exchange for advertising purpose. He also stipulated that Parle should forego the cash incentives in full but this condition was later-on withdrawn. The letter ends with the observation :-
"The case papers will be returned to you on receipt from Government" indicating that the Dy. Controller had also referred the matter to the Central Government. On 21st June 1977, Parle forwarded a copy of Franchise Agreement with the foreign bottlers to the Joint Controller, Reserve Bank of India, and the noting on the latter shows that the Agreement was scrutinised by the Officers of the Reserve Bank of India, and thereafter the foreign exchange required was released in favour of the Parle.
4. However, some two years thereafter, the Joint Controller of the Exchange Control Department, Reserve Bank of India, in his communication dated 3rd September 1979 to the Controller, referred to a joint venture set up by Parle with a party in Singapore with the permission of Government of India, but said that an article in "Caravan" dated 2nd March 1979 speaks of setting up plants by the Company in Mauritius, Dubai, Kuwait and Bangladesh. The Joint Controller, upon enquiries from Parle, learnt that Parle have no financial investments in these plants and enclosed a copy of agreement received from the company for verification. The Joint Controller was also asked by the Controller whether the arrangement in the said agreement would not require the approval of the Government or the Reserve Bank of India.
5. The Joint Controller was asked to advice the Company to apply for approval of Government under Section 27 of the Act, which was accordingly done by the company. The matter stood there.
6. Messrs. Parle (Exports) Pvt. Ltd., Mr. Ramesh J. Chauhan and Mr. H. M. Golwala, two Directors of Parle, are being prosecuted before the Additional Chief Metropolitan Magistrate, 8th Court, Esplanade, Bombay, for having committed offence under Section 27(1) read with Section 56 of the Act. An application was made by the accused persons under Section 245(2) of the Criminal Procedure Code for their discharge which application having been dismissed by the Additional Chief Metropolitan Magistrate, 8th Court, Esplanade, Bombay, the accused have preferred the present Criminal Writ Petition.
7. As the preamble indicates, the Act is to consolidate and amend the law regulating certain payments, dealings in foreign exchange and securities, transactions indirectly affecting foreign exchange and the import and export of currency and bullion, for the conservation of the foreign exchange resources and the proper utilisation thereof in the interests of the economic development of the country. The administration and monitoring of the Act is entrusted to two instrumentalities of the State, by the Act. Under Section 8(1), (2) etc., it is the Reserve Bank which is charged with the responsibility of granting general or special permission for dealing in foreign exchange. The Bank can authorise making of payment in foreign exchange to a person residing outside India under certain conditions. The subject of regulating the association of persons residents in India with concerns outside India is taken care of by section 27(1) of the Act which reads as under :-
"27(1) Without prejudice to the provisions of clause (e) of sub-section (1) of Section 19, no person resident in India shall, without the previous permission of the Central Government, associate himself with, or participate in, whether as promoter or otherwise, any concern outside India engaged in, or intending to engage in, any activity of a trading, commercial or industrial nature, whether such concern is a body corporate or not".
8. As observed earlier, upon a belated advice from the Reserve Bank of India, Parle did apply to the Central Government for permission under Section 27, but no permission as such has been granted to them. Consequently, the present writ petition fails or succeeds, depending upon whether or not the acts of Parle could fall within the prescription against "associating themselves with or participate in, whether as promoter or otherwise in any concern outside India" within the meaning of sub-section (1) of Section 27 of the Act.
9. It is nobody's case that Parles are receiving foreign exchange as a result of their collaboration with the foreign bottlers under the heads of (i) use of trade-mark; (ii) giving technical guidance in preparing the finished product viz., the aerated drinks with the use of the concentrates supplied by Parle and (iii) incurring expenditure in foreign exchange (over and above that permitted by the Reserve Bank) in launching a massive advertising campaign in foreign countries. It is urged by the prosecution, which argument found favour with the Court below, that the expression "associate with or participate in" should be given a wide and broad meaning; while Counsel for the Petitioners submit that the phrase "whether as promoter or otherwise" occurring in the sub-section is indicative of the fact that the interpretation should follow the principle of ejusdem generis and draw inspiration from the word "promoter" while scrutinising the conduct of the accused.
10. If the expression "associate with or participate in" is to be given a broad and wide meaning as canvassed by the State, the various steps taken by Parle, such as allowing the bottlers to use the trade-mark, actively propagating the sales and offering technical know-how would surely fall within the ambit of the two expressions. However, reading of the preamble and examining the scheme of the Act more particularly Section 76 thereof which contains the guide-lines as to when permission or licence under the Act should be given, it is clear to me that narrow interpretation following the ejusdem generis rule will have to be put upon the phrase "whether as promoter or otherwise".
11. The Supreme Court, in George v. Controller, Estate Duty, Mysore, , had occasion to consider Section 10 of the Estate Duty Act, 1953 containing the expression "by contract or otherwise". The Court observed at page 851 :-
"It was argued for the appellant that the expression "by contract or otherwise" should be construed ejusdem generis and reference was made to the decision of Hamilton, J. in 1911-2 KH 688. On this aspect of the case we think that the argument of the appellant is justified. In the context of the section the word "otherwise", should, in our opinion, be construed ejusdem generis and it must be interpreted to mean some kind of legal obligation or some transaction enforceable at law or in equity which, though not in the form of a contract, may confer a benefit on the donor."
12. When it comes to the question of interpreting the word "otherwise" while dealing with the powers of a Court, the interpretation is different. In Z Ltd. v. A-Z and AA-LL. (1982) 2 W.L.R. 288, at page 293, the Court was considering Section 37(3) of the Supreme Court Act, 1981 which says :-
"The power of the High Court ... to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, assets located within the jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled, resident or present within that jurisdiction."
The Court observed :-
"Those words "otherwise deal with " are in my opinion to be given a wide meaning. They are not to be construed as ejusdem generis with "removing from the jurisdiction."
Comparison of these two cases shows that whenever the question relates to the interpretation of powers of the Court to grants relief and that too of the interlocutory nature when it is apprehended that the defendant may dispose to property of considerable value by removing the same beyond the jurisdiction of the Court, the wide interpretation is put but while dealing with the taxing statute like the Estate Duty Act where the interests of the subject are to be considered, a narrower interpretation and the rule of ejusdem generis is applied. Like the use of the word "contract" in George's case, here we have the word "promoter" in the Foreign Exchange Regulation Act from which we can obtain light regarding the type of conduct which was sought to be prescribed by the Parliament. The impugned conduct should partake some of the attributes of the conduct of a promoter even though the person may not have an inadequate interest in the company. The exchange of correspondence between Parles and the Reserve Bank of India, the queries put by the Reserve Bank of India make it clear beyond doubt that the Parle did not have a financial stake in the actual running of the concerns in Sharjah or Kuwait but were interested in earning more foreign exchange for the country in the shape of more sales of concentrates to the bottling plants. It was a tactical business like more on the part of Parle to finance a whirl-wind sales promotion campaign to ensure that the sales of their product do not plummet in competition with the products of the well-known international giants like Pepsi-Cola, 7 Up, Canada Dry, etc. Parle were not to get any cut from the profits made by foreign bottlers and hence their conduct can never come anywhere near the conceptual conduct of a promoter.
13. Leaving aside the common law concept of mens rea which consists of some positive state of mind such as knowledge, which has to be proved of the prosecution, the other regulatory offences can fall in two broad categories. One would be that of offences of absolute liability where it is not open to the accused to exculpate himself by showing that he was not aware of the commission of the act - that is it was involuntary. In such offences of absolute liability like speeding in excess of the limits laid down in that zone, all that prosecution has to prove is that the accused, whether he was aware or not, was driving his automobile at a speed higher than the prescribed one. No explanation of the accused can exculpate him but the penalties in such cases would be nominal fines. The second group would be offences in which there is no necessity for the prosecution to prove mens rea but the only actus rea which consists of doing a prohibited act. Here, unlike the offences of absolute liability, it is open to the accused to avoid liability by proving, firstly, that he took all reasonable care or that the act complained of does not fall within the prohibited category. An honest and reasonable belief in a state of facts which if they existed would make the acts of the accused innocent affords an excuse for doing what would otherwise be an offence.
14. Herein, the conduct of Parle has been exemplary. They did not hide anything : they forwarded all the Franchise agreements to the Reserve Bank when asked, for release of foreign exchange to finance their high profile advertising campaign. Parle even did not agree to the suggestion of the Reserve Bank that they should forego the cash incentives and succeeded in getting this terms deleted from the conditions of release of foreign exchange. Reserve Bank, on their part scrutinised the Franchise agreements and having raised no objection and released the foreign exchange requested for, Parle were entitled to draw a reasonable inference that their conduct in allowing the bottlers to use their trade-marks free of cost etc. would not fall within the mischief of Section 27 of the Act. It was a news item in a magazine that set the ball rolling. All those concerned felt that Parle should apply to the Central Government which they did, but no reply was received from the Central Government though Parle waited for 20 months.
15. The generally considered purposes of criminal law include :
"(1) the proscription of conduct which unjustifiably and inexcusably causes or threatens substantial harm to individual or public interests;
(2) The giving of clear warning of the nature of the conduct so proscribed;
(3) the safeguarding of conduct which is without blame from condemnation as criminal;
(4) the differentiation on reasonable grounds between serious and minor offences.
In the pre-war era, for political reasons - which by now are matters of common knowledge - any resident of India could freely obtain Pound Sterling but the impact of the drain of foreign exchange on the Indian economy was so crippling that the legislature had to proscribe unauthorised dealings in foreign exchange as they threatened to cause substantial harm to public interest. This prohibition would fall within the first purpose of criminal law indicated above. This abrupt change of philosophy making certain conduct illegal which heretobefore was not only perfectly legal but encouraged by the colonial rules has to be brought home to the prospective users of facility of obtaining foreign exchange for trade or commerce. Augmentation of foreign exchange reserve of a country is a recognised policy of economic planning but one must realise that it is not the State that generates foreign exchange but those engaged in international business whether in private sector or public sector do so. Such entrepreneurs must be allowed to set their sails as close to the wind as they dare, and as observed in (2) above, the entrepreneurs must be given clear warning of the nature of the conduct, so proscribed. In common law offences of murder or theft no one would expect State to publicise on the T.V. or radio that people should not commit murders or theft. It is something embossed upon the psyche of the Indian public which by and large has a religious bent of mind. Such laws form part of morality and do not derive sanction only because they appear on the statute book. But, regulatory offences, such as those dealing in foreign exchange, fall in a different category. An edification from the State in this regard, like the assistance that is rendered by the Revenue in the matter of fiscal laws, would go a long way in ensuring compliance of the laws.
16. It is not suggested that we should nail the colours of criminal intent on the mast of strict liability, but, surely, a man of business would expect, when he lays bare his cards on the table, that the State should tell him that a particular move is a proscribed one. A failure to do so would only invite a Benthamite criticism that the ways of Government are akin to a way of teaching conduct to one's dog by waiting till it has done something objectionable and then beating it. In the facts of the present case, it is not answer to say that the Reserve Bank to whom the Franchise Agreements were forwarded was not the agency to grant previous permission to Parle in their trading activity as that grant power vested in the Central Government under Section 27 of the Act, more so, when the Franchise Agreements were forwarded by the Reserve Bank to the Government. It is felt that an active co-ordination between the Reserve Bank and the Central Government in the matter of processing of such foreign collaboration would make for a smoother and meaningful operation of the Act.
17. In view of the foregoing. I find that the learned Magistrate was wrong in disallowing the application of the Petitioner.
18. The Petition, therefore, succeeds, and the rule is made absolute. The proceedings in Criminal Case No. 149/CW/1984 in the Court of the learned Additional Chief Metropolitan Magistrate, 8th Court, Esplanade, Bombay, are quashed and the accused stand discharged.